Medicare Funding Cuts Would Hit Fresno, Rural Hospitals Hardest

Already reeling from big cutbacks in Medicare funding, hospitals in the Fresno area would lose another 5.4 percent of their federal reimbursement under a new analysis ordered by Congress.

Rural areas of California would be hit hardest under the Institute of Medicine study, which would pare Medicare payments to the state’s hospitals by an average 3-4 percent.

A separate proposal governing Medicare payments to physicians would also work against the Fresno area. Reimbursements paid to doctors would drop by 4.3 percent throughout Fresno County, according to the study.

For the state as a whole, the institute’s proposal would be a wash for California doctors. But here again the rural parts of the state would lose ground, with payments declining in 36 of 58 counties.

The institute’s recommendations, which would cut hospital payments in 26 of 28 metropolitan areas in California, alarm the California Hospital Association.

Anne McLeod, senior vice president of health policy of the association, said that given the billions in cuts the state’s hospitals have already sustained, “another 5 percent reduction would just be devastating.”

Even small changes would pack a punch, since hospitals typically receive at least a third of total revenue from Medicare. More important, that percentage is expected to soar with the aging of the baby boomers. In 20 years, Medicare is projected to make up well more than of half of hospital revenues.

The recommendations are part of an effort to reduce disparities in the way Medicare services are reimbursed around the country. Although current systems adjust for cost-of-living differences, many doctors and hospitals complain that these formulas aren’t fair, or that additional programs imposed by Congress have created even bigger disparities.

Indeed, the Institute of Medicine proposals call for significant reductions in rural states that have long secured favorable standing in Congress. In Alaska, for example, protected by powerful senators like the late Ted Stevens, doctor payments would be reduced 17 percent, according to the recommendation. Reimbursements would be slashed 9 percent in the Dakotas, and 7 percent in Nevada.

Similarly, in California, doctor payments would be cut significantly in rural counties like Merced (5.3 percent) and Kings (6.4 percent); by contrast, Sacramento County doctors would get a 2.1 percent increase.

The proposals’ fate is unclear, although they aren’t expected to become law anytime soon. Jan Emerson-Shea, spokeswoman for the California Hospital Association, said any adjustments in Medicare formulas will probably be a result of deficit-reduction politics in Washington as opposed to equity concerns. “It will largely be a budget-driven conversation,” she said.

However, the Institute of Medicine’s data are illuminating about the ways in which the Medicare system may unfairly penalize one area over another. Santa Rosa’s hospital reimbursements would plummet 14.5 percent, for example, while those in Visalia would rise 10 percent. The implication: Santa Rosa hospitals are getting a windfall now, while Visalia’s are shortchanged.

The study may also hint at what areas are most vulnerable should Congress choose to adopt a new reimbursement system.

One longstanding problem the proposal purports to solve is removing the penalty now imposed on counties like San Diego and Santa Cruz, which are designated as rural counties and thus receive lower-than-warranted Medicare reimbursements for doctors, advocates say. Santa Cruz County would see physician payments go up 9 percent; they would rise 3 percent in San Diego County.

The Institute of Medicine sought to downplay the magnitude of the ups and downs it recommends, saying most changes would be less than 5 percent.

The hospital association takes issue with the Institute of Medicine’s methodology, which used Bureau of Labor Statistics wage data for the various geographies. Currently, payments are based on actual wages paid to hospital employees – a system that takes account of California’s unionized hospital workers and of a state law mandating minimum staffing levels for nurses.

That’s critical to the state’s hospitals, because California has 10 of the 11 highest hospital wage areas in the nation, according to the hospital association.

The institute’s implicit retort to California: To the extent hospital expenses run ahead of local wage and cost bases, these should not be borne by the Medicare system.

The California Medical Association, by contrast, fully embraces the recommendation on physician payments, even though it would leave many doctors with smaller federal checks.

“What’s most important is Medicare pay doctors based on actual costs,” said Elizabeth McNeil, vice president of federal relations for the California Medical Association. “There hasn’t been a full update of the formula since 1966… This is overdue.”

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